This note summarises the preliminary findings of research into the feasibility of a universal social pension in the Philippines.

The research is
being undertaken in partnership between the Coalition of Services of the Elderly (COSE) and HelpAge International, with support from the
Social Development and Research Center (SDRC) and independent researchers from University of the Philippines. The full report will be
released in mid-2016.

Why universal social pension

The need for a life cycle social protection system
Levels of poverty, vulnerability and inequality remain high in the
Philippines despite positive economic growth in recent years. It
is common knowledge that in recent decades the country has
struggled to reduce poverty. Around a quarter of the population
were below the poverty line at the last count, and an additional
quarter of the population live on a low income and risk falling into
poverty at any moment. In the meantime, the Philippines remains
one of the most unequal countries in the region; and there are
signs that inequality is growing. Failure to tackle these issues will
not only result in continued insecurity for at least half the popula-
tion but also risks weakening social cohesion and heightening
social unrest.
Social protection is a critical tool for ensuring that growth is in-
clusive, yet existing policies in the Philippines remain too limited
to have a major impact. International experience shows that
social protection systems are an essential approach to reducing
poverty and inequality. The Philippines has recently taken positive
steps to expand social protection schemes that reach poorer
households and individuals, particularly through the Pantawid
Pamilyang Pilipino Program (4Ps) and the social pension for indi-
gent senior citizens. These schemes have had an important im-
pact on recipients, however, at a cost of just 0.5 per cent of GDP,
they remain small relative to the economy and the government
budget. For recipients, benefit levels are relatively low by interna-
tional standards, while the targeted nature of the programmes
results in many poor and vulnerable families being left out.
Moving towards a life cycle system social protection will provide
a stronger foundation for tackling poverty and inequality. Coun-
tries where social protection systems has made a substantial con-
tribution to inclusive growth have been those that have devel-
oped comprehensive social protection floors that protect all citi-
zens from major life course risks, such as old age, disability, and
raising a family. Building a system of this nature cannot be done
overnight, but the Philippines can start making concrete steps
now toward such a system. A pension system that benefits all
Filipinos would be an important starting point in the process of
building a social protection floor.
The economic challenges of old age
Growing old in the Philippines comes with major challenges to earn-
ing a living. As individuals age, staying at work becomes significantly
harder, and those who do tend to work fewer hours. The main drivers
of this dynamic are ill health and disability that affect a large propor-
tion of older people. This does not necessarily mean older people
become inactive in a broader sense; many continue to contribute to
their families in a variety of ways, such as through caring for grand-
children. Many older people would also like to work longer, given the
opportunity, but face barriers due to age discrimination and the man-
datory retirement age of 65.
The majority of Filipinos cannot currently expect to receive a pen-
sion in their old age. As shown in Figure 1, a little over a quarter of
senior citizens or 29 per cent of their population receive pension
based on their previous working history (SSS, GSIS and others) with an
additional 17 per cent of older people (1.4 million) budgeted to be in
receipt of the social pension by the end of 2016. Even when all of
these schemes are combined, over half of Filipino older people (at
least 54 per cent) are left with no pension at all.1 For many of those in
receipt of a pension, benefits can be low – and this is not only limited
to social pensioners. A third of SSS retirees (34 per cent) receive less
than PhP 2,000 per month, and half (52 per cent) receive less than
PhP 3,000.
Figure 1: Over half of senior citizens receive no pension at all
Estimated coverage of the population 60 years and over by type of pension
1
Given that some older people may be in receipt of more than one pension, total coverage
may be lower in reality.

Universal Social Pension: Feasibility in the Philippines: Preliminary Findings 1

In this context, most senior citizens have to look to their families
for financial support in old age. In general, the culture of utang na
loob (debt of gratitude) remains strong in the Philippines with most
older people looking to their children for care and financial support.
Over half (58 per cent) of older people receive income from children
within the country, and a fifth (21 per cent) from children outside the
country.2 This support is reciprocated often in the role that older
persons play in continuing to providing care and support for grand-
children and adult children. Younger Filipinos also have a strong ex-
pectation that their children will provide financial support when they
grow old and they see investing in children’s education as the prima-
ry way to ensure old age income security.
“…we should make it sure that we are able to send our
children to school and so we could rely on them for sup-
port when we are old.”
34 years old, female participant, Oroquieta City
There are, however, major issues with the exclusive reliance on
children for old age support. There are strong indications that, even
where older people receive financial support, this is often too lim-
ited, particularly to pay for rising medical costs associated with old
age. A major reason for this is the widespread poverty and vulnera-
bility amongst Filipino families. Many working adults have to make a
trade-off between supporting older people and investing in young
children. Depending completely on their children for financial sup-
port also threatens the dignity of senior citizens - many of whom fear
becoming dependent, and feel too proud or ashamed to ask for sup-
port. Young and middle-age adults who took part in discussions for
this study noted that older people who have meagre resource are
heavily burdened emotionally and mentally when they are unable to
help their adult children and grandchildren in their survival needs.
The expansion of a social pension was seen not only as a way to ena-
ble older persons to live a dignified life where they can meet their
own needs, but also to extend aid to their families in dire need of
financial help.
Designing a universal pension system
Expanding coverage of contributory pensions will be a core part of
building a comprehensive pension system. Contributory pensions
are key for ensuring that individuals can smooth their consumption
across the life course, ensuring they can sustain their standard of
living in old age. Existing contributory pensions in the Philippines (of
which SSS and GSIS are most significant) have a long history and
provide a foundation for expanding contributory system.
Nevertheless, levels of poverty and informality put major limits to
which contributory coverage can expand in the short to medium
term. Currently, less than a third of economically active Filipinos
are making regular contributions to a pension. This means that, if
nothing is done, pension coverage will increase little for future gen-
erations of older people. A major reason for this is that a large pro-
portion of the economically active population – an estimated 42 per
cent – are working in the informal sector.3 A number of initiatives
can be undertaken to expand coverage to the informal sector, how-
ever, an inherent barrier is the simple fact that many informal sec-
tor workers do not earn enough income to make sufficient pay-
ments to a contributory scheme. International experience shows
that for countries with similar profiles to the Philippines in terms of
Universal Social Pension: Feasibility in the Philippines: Preliminary Findings
poverty and informality coverage will not expand significantly
without a much greater role for tax-financed social pensions.
The social pension for indigent senior citizens has gone some
way to close this gap, but does not go far enough. Two main
issues limit the impact of the social pension. First, the means-
tested nature of the scheme excludes – by design – a large pro-
portion of vulnerable older people whose incomes were too
meagre to contribute to social security earlier in their lives, but
who fail to meet the strict eligibility criteria for the current social
pension. Targeting errors also mean many of the very poorest
older people are left out. Second, the benefit level of PhP 500 is
low relative to both Filipino and international benchmarks,
meaning the scheme provides a very limited level of income se-
curity.4
A universal social pension would close the pension coverage
gap and provide a strong foundation for the development of
the pension system. Universal social pensions are tax financed
schemes which guarantee a minimum pension to all citizens and/
or residents, primarily on the basis of age. They exist in a several
countries across the region and the world and have proven to
provide one of the simplest and most effective ways of ensuring
all citizens receive a pension in old age. The expansion of a uni-
versal social pension would reflect the approach being taken by
other countries facing similar constraints to the Philippines. A
number of other ASEAN countries including Thailand, Vietnam
and Brunei have universal pensions in place. Indonesia is strongly
prioritising a move towards universal old age social security,
while Myanmar is taking steps to implement a universal social
pension.5 This reflects a trend in other Asian countries, such as
China, Timor-Leste and South Korea, where coverage of social
Why universal?
Universal pensions have a number of advantages compared
to the means-tested approach currently used for the social
pension for indigent senior citizens.
All poor senior citizens will be reached: established univer-
sal pensions have virtually no exclusion errors.
They provide security for low-income informal sector work-
ers: this can be complemented by contributory savings.
Eligibility criteria are transparent and easy to understand:
this creates less space for corruption and clientelism.
A right; not a gift: rather than feeling a sense of shame at
being poor, recipients receive their pension with dignity.
Strong Political Support: as an entitlement for all Filipinos
universal pensions may gain broad-based political support.
Cheaper administration cost: the simple and transparent
eligibility criteria for universal pension results in lower admin-
istration costs.
2
Cruz, T. G., Camhol (2014)
3
Mesa-Lago, C., Viajar, V., Castillo, R. (2011)
4
Knox-Vydmanov, C., Horn ,D and Sevilla, A. (2016)
5
The Republic of the Union of Myanmar (2014)
6
HelpAge International (2014)
2
There are a number of different ways to design a universal social pension. The simplest option available would be to pro-
vide a benefit to all older people over the age of 60. Figure 3 shows how a universal social pension would provide a foundation
to the Philippines pension system. This approach would have the lowest administrative costs, and be substantially less burden-
some to implement than the current social pension for indigent senior citizens. It would also have the political advantage of
providing an entitlement that all Filipinos could look forward to while reducing the scope for local level politicisation of the
scheme. On the other hand, there may be a desire to exclude older people who are already receiving pensions, such as from
the GSIS and SSS. This approach –called “pensions testing” (Figure 4) – would be relatively straightforward to implement if ad-
equate systems are put in place for sharing information between different schemes.7 However, a risk is that this creates a
sense of unfairness amongst other pensioners that have been excluded, and potentially discourages younger people from join-
ing those schemes.8 A middle way would be to taper away the social pension benefit as other pension income increases rather
than bluntly excluding existing pensioners, or only excluding those from certain schemes such as the GSIS (Figure 5). This is an
approach used in many Scandinavian countries as well as Chile and the Maldives.

Figure 2: Current pension system Figure 3: Universal pension

Figure 4: Pensions-tested pension Figure 5: Pensions test (with taper)

Impacts of a universal pension system

A universal social pension will help to ensure that all Filipinos live
their old age with dignity and autonomy. International evidence
shows how universal social pensions promote a sense of dignity,
which is often lacking when older people have to depend exclusive-
ly on their children for support. The introduction of a universal
social pension in Mexico has led to a significant reduction of de-
pressive symptoms amongst recipients, and an increase in empow-
erment indicators, such as participating in household decision mak-
ing. 9Their universal nature also means recipients see the benefit as
a right, and a recognition of the contributions they have made to
society, rather than simply a gift or a handout.
Beyond older people, universal pensions also contribute to a vari-
ety of positive developmental outcomes.
 Reducing poverty and inequality: Pensions are often central to
efforts to reduce inequality and strengthen inclusive growth by
sharing the financial risks of old age across society. In Brazil, basic
pensions were responsible for one-third of the reduction in ine-
quality between 1995 and 2004. 10
 Transformative support to ordinary families: The regular income
from pensions is often invested in boosting family livelihoods and
building the skills of future generations. In Bolivia, the universal
social pension was found to substantially reduce child labour and
increase school enrolment in households receiving the pension. 11
It also boosted food consumption for recipient household in rural
areas by over 1.5 times the value of the pension, in a large part
due to multiplier effects from productive investments.12
 Stimulating the economy: Pension systems are an important
channel for governments to boost household consumption, espe-
cially in times of crisis. Thailand’s universal social pension was
introduced in 2009 as a counter-cyclical response to the global
financial crisis, while China’s rural pension is part of an approach
to boost spending and strengthen domestic demand.13
7
It is worth noting that this sharing of information is not in place with the current
social pension for indigent senior citizens, despite the fact that the eligibility
criteria excludes those in receipt of another pension (from SSS, GSIS or other
scheme).
8
This would be of particular concern with the SSS where current benefits are
9
relatively low.
Salinas, A., et al (2014)
10
Soares, F. et al (2014)
11
Mendizabal, J. (2013)
12
Martinez, S. (2004)

Universal Social Pension: Feasibility in the Philippines: Preliminary Findings 3

A universal social pension in the Philippines could lift
over 3 million Filipinos out of poverty. Figure 6 shows
results of simulations of the immediate impact of
providing a universal social pension to all senior citi-
zens age 60 and over, according to different benefit
levels. A universal social pension of PhP 2,000 would
lead to a reduction of three percentage points. While
seemingly modest, this is a major “day after” impact
relative to the limited falls in poverty over the last 15
years. It would also lead to 3.2 million Filipinos – old
and young – being lifted above the poverty line. It
should also be noted that the simulations do not take
account of indirect impacts, such a multiplier effects
within local economies, which could lead to further re-
ductions in poverty.
Figure 6: A social pension would reduce national poverty by be-
tween 1 and 3 per cent
Total poverty rate before and after universal pension for older people
aged 60 and over 14
Source: Microsimulation based on APIS 2013
Table 1: The cost of a universal pension varies significantly depend-
ing on the benefit level
Cost of a universal pension for all older people aged 60 and over (2016)
Affording a universal pension
A universal social pension close to the poverty line would be an
affordable ambition for the Philippines. It is well acknowledged
that the current social pension benefit is too low to provide ade-
quate income security to senior citizens. A universal social pen-
sion of PhP 1,500 per month providing an income close to the
poverty line would cost around 1 per cent of GDP if provided to
everyone over 60 (Table 1). This level of expenditure is compara-
ble to that of a number of other countries with social pensions at
a similar level of economic development.
In the meantime, there are a number of lower cost options that
would allow the country to gradually expand a universal social
pension in the short term. Budgetary constraints mean it may
take some time to secure financing the optimal scenario for a so-
cial pension. In the meantime, a number of interim options exist.
Simply expanding the current social pension to all older people
aged 60 and over would cost just 0.3 per cent of GDP (PhP 39.8
billion), still less than what is spent on the 4Ps programme. Even
lower cost interim options could be found by limiting the univer-
sal scheme to older people above a certain age (eg. those 70
years and over) or using some form of pensions test. Table 2 and
Table 3 show the cost of two scenarios for pensions-tested
schemes. Scenario 1 would exclude all existing pensioners and
reduce the cost of a scheme by about 30 per cent relative to a
pure universal scheme. Scenario 2 would only include SSS pen-
sioners, but exclude GSIS and other schemes, reducing costs by
about 6 per cent.
The cost of a universal pension could be kept stable over time,
while still maintaining the purchasing power of the benefit. A
common concern in financing of universal pensions is that the
ageing of the population will lead costs to increase exponentially.
In fact, cost over time is strongly influenced by how the benefit
level is indexed. Figure 6 shows the cost of a pension of PhP 1,500
(2016 prices) to all senior citizens according to different scenarios.
When the benefit is indexed to inflation, the total cost would re-
main stable, seeing either a modest rise or fall depending on the
speed of economic growth in the country.
Table 3: Pensions tested (scenario 2)
SSS pensioners included

Benefit level (monthly, PhP) Benefit level (monthly, PhP)

Cost
Cost 500 750 1,000 1,500 2,000
500 750 1,000 1,500 2,000
PhP
44.9 67.4 89.8 134.8 179.7
PhP (billions)
48.0 72.0 96.0 144.0 192.0
(billions) % of GDP 0.30% 0.45% 0.60% 0.91% 1.21%
% of GDP 0.32% 0.48% 0.65% 0.97% 1.29% % of govt.
1.50% 2.24% 2.99% 4.49% 5.99%
budget
% of govt.
1.60% 2.40% 3.20% 4.80% 6.39%
budget

Table 2: Pensions tested (scenario 1)

No other pensioners included

Benefit level (monthly, PhP)

Cost 13
500 750 1,000 1,500 2,000 HelpAge International.
14
Due to some limitations of the public use file used for analysis of the
PhP APIS 2013, the headline poverty rate for 2013) is slightly different from
34.2 51.3 68.4 102.7 136.9
(billions) the published figure. This poverty rate is, however, within the confidence
interval.
15
% of GDP 0.23% 0.35% 0.46% 0.69% 0.92% Cost estimates are based on authors’ calculations based on IMF and UN
Population Division Data.
% of govt.
1.14% 1.71% 2.28% 3.42% 4.56%
budget

Universal Social Pension: Feasibility in the Philippines: Preliminary Findings 4

 Figure 7: The future cost of a universal pension depends on indexa-
tion choices, and growth
Cost of a universal pension into the future (2016-2045) – scenario is
PHP 1,500 to over 60s
Financing a universal pension would recognise the contributions
made by senior citizens throughout their lives, financial or other-
wise. Today’s senior citizens have contributed to the nation in all
manner of ways throughout their lives: by paying taxes, by con-
tributing to the growth of the economy and by raising the future
generation of Filipinos. In this way, a universal pension can be
seen as a way of systematising the culture of utang na loob.
A universal pension can be financed as part of a broader effort to
build a more equitable and efficient tax system. There is already
broad recognition of the need to increase government revenue to
meet priority expenditures, and a number of options exist for do-
ing so, including improving management of investment tax incen-
tives and the system of taxation on individuals. A universal pen-
sion would be an equitable expenditure relative to many other
items on the government budget. This includes a number of ex-
isting pension schemes. In 2010, the state-financed pensions for
middle- and upper-income pensioners took 35 times the projected
cost of social pensions for the elderly poor. State-financed non-
contributory pensions for separate schemes (armed forces, judges
and policemen) took 0.34 per cent of GDP whereas those for the
poor only 0.01 per cent. (Meso-Lago, et al, 2010)
Conclusions and Recommendations
A stronger social protection system will be essential in order to
tackle the persistent levels of poverty, insecurity and inequality in
the Philippines. A pension system that delivers “for every older
Filipino” will be a core part of this. A universal pension system
would respond to the unavoidable economic challenges of old age
while providing a cushion to families that struggle to divide meagre
incomes between competing priorities. Evidence from other coun-
tries shows how pensions have a broad range of impacts on pov-
erty and inequality, family livelihoods, and the economy as a
whole. A universal pension in the Philippines could lift 3.2 million
people out of poverty.
A universal social pension financed from taxes will be essential to
close the pension coverage gap, which currently leaves half of sen-
iors out of the system. A universal pension would avoid the inher-
ent challenges of means-testing while creating a clear entitlement
that all citizens can understand. It could also provide a foundation
for the longer-term task of expanding coverage of contributory
pensions to the informal sector. There are choices to be made
about whether a universal pension would be for all, or just those
left out from other pensions. Either way, costings show that there
are a number of low cost options for a universal pension that are
affordable, both now and into the future. Making fiscal space for a
universal pension can be done in a variety of ways, while forming
part of the process of building a fairer and more progressive tax
system in the country.
Policy Recommendations:
 As a priority, expand the existing social pension to cover all
senior citizens without any other form of pension, regardless
of indigency. This will ensure that all Filipinos can expect at
least a minimum pension in old age.
 Initiate a broader process to reform the pension system as a
whole so that is performs the dual function of ensuring a mini-
mum level of adequacy, while providing a channel for all work-
ers (formal or informal) to save for their old age.

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Universal Social Pension: Feasibility in the Philippines: Preliminary Findings 5